Crude oil prices hit a year-record high of $46 a barrel yesterday, giving Nigeria a buffer of $8 over its $38 a barrel 2016 budget benchmark, a feat, which it has not attained since January.
Specifically, Brent crude rose by 77 cents from a session low this morning to hit $46 a barrel by 7.50am UK time, while the US, West Texas Intermediate (WTI) futures were up by 19 cents from $43.62 to $44.37 a barrel.
Crude oil prices have been rising since beginning of the week despite the failure of talks at the weekend between the world’s largest oil producing countries that were intended to tackle oversupply by freezing production.
Hope that the global crude oil prices will continue to rise was further boosted yesterday, as the United States (U.S.) onshore crude oil production in the lower 48 states is expected to decline from an average of 7.41 million barrels per day (bpd) to 6.46 million bpd in 2016 and to 5.76 million bpd in 2017.
The U.S. Energy Information Administration (EIA), which attributed the decline to response to continued low oil prices, noted that increased production from the Federal Gulf of Mexico (GOM) is not enough to offset those declines, with total projected U.S. production falling from 9.43 million bpd in 2015 to 8.04 million bpd in 2017.
The EIA stated that the sharp decline in oil prices since the fourth quarter of 2014 has had a significant effect on drilling in the United States.
It stated: “The number of active onshore drilling rigs in the Lower 48 states fell 78 per cent (from 1,876 to 412) between the weeks ending on October 31, 2014, and April 15, 2016. The decline in active rigs and well completions is projected to result in month-over-month onshore oil production declines of 120,000 bpd through September 2016.
“Market expectations of uncertainty in the crude oil price outlook continue to be high, as reflected in the current values of futures and options contracts. In EIA’s April Short-Term Energy Outlook (STEO), the 95 per cent confidence interval for market expectations for prices in December 2017 is relatively wide, with upper and lower limits of $20 per barrel (b) and $100/b, respectively. EIA’s April STEO forecasts Brent crude oil prices averaging $35/b in 2016 and $41/b in 2017, with the December 2017 price averaging $45/b”, it added.
EIA projects that the number of operating rigs in the Lower 48 states will continue to decrease through mid-2016 before beginning to slowly increase. “However, expected Lower 48 production will continue to decline—although at a slowing rate—throughout 2017”, it said.
Also, the International Energy Information Administration (IEA) said that low oil prices have squeezed capital investment hard, which saw a 24 per cent drop in global capex, and this year, expecting a further decline of 17 per cent: the first back-to-back annual declines since 1986.
It said that the situation could get worse as companies continually review their spending plans. “The cutbacks are mainly concentrated in high-cost projects in countries such as Canada, Brazil and Russia. However, the cuts are not limited to capital expenditure, or capex: operating expenditure is being cut even in lower-cost areas such as the Middle East. Such are the budgetary pressures affecting their economies that oil industry cutbacks are necessary to fund politically important social expenditure”, it added.